Brewing merger

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Brewing mega-merger

Belgium based
AB InBev and London based SABMiller have reached agreement in a $104.2bn
merger deal which will bring some of the world’s most valuable brands under
one corporate roof, including Budweiser, Miller Lite, Peroni, Grolsch and
Stella Artois. AB InBev increased its cash offer to SABMiller shareholders
to £44 per share – some 50% over SAB’s September share price. The combined
company would have a turnover in excess of £240bn and, with a global market
share of 30.5%, would sell around one in every three beers bought. The merger will be one of the world’s
largest, creating a company with over 220,000 employees and operating in more than 100
countries.

Global market shares before the merger

Brewing market shares 2015 | amCharts

Regulators will
now be pouring through the detail of the intended merger to establish the
key competition issues emerging. Brewing is a highly vertically integrated
industry, in which dominant firms are able to dictate prices to retailers and limit
consumer choice in pubs, hotels and other controlled outlets. The merger will make a
difficult situation worse for smaller micro-breweries and those selling
‘craft’ beers, who have seen increases in market share in recent years. This
makes them easy pickings for the mega breweries who are keen to add craft
beers to their portfolio. Even before the proposed merger, the brewing
industry has been the subject of close monitoring in terms of its
anti-competitive structure and considerable barriers to entry.

While the
merger will face close scrutiny in many territories, it is thought that it will be allowed with
a likely request to divest brands and
selling stakes in other breweries. That the merger is likely to go ahead
with modest regulation is because even though global
concentration in the industry will increase considerably, the effect in any
one territory is limited. For example, while AB InBev has a market share of
nearly 80% in Argentina, it is only 16% in the UK and 6% in Germany. In France,
both SABMiller and AB Inbev lag behind Heineken which has a 30% market
share. However, some
enforced selling is likely, with AB Inbev required to sell SABMiller’s stake
in MillerCoors in the US and CR Snow in China (a joint venture between SAB
Miller and China Resources Limited), which controls around 25% of the
Chinese market.